Regulation in the Crypto World, Part I: Leading the Way into the Light

Charles Cascarilla
3 min readJan 3, 2019


At Paxos, we believe crypto and blockchain will transform the way value and assets move around the world. We also understand that in order to enable that transformation in the world of finance — and succeed — we must adhere to regulation or suffer the fate of companies like Mt. Gox, HempCoin and the thousands of vanishing ICO projects that failed. (ref:

From the beginning, we sought high levels of regulation for the sake of protecting our customers’ funds and building for the long haul. We became the first financial institution to be approved to operate in crypto globally, which is a huge differentiating factor from all other stablecoins which are not regulated (aside from Gemini).

Our commitment to regulatory compliance may sometimes mean that we have to deny certain customers from working with us. No business ever wants to turn away customers or prevent them from using wants to deny or stop customers from using their products. But to operate legally, there are certain customers we cannot serve — like those who are trying to circumvent AML/KYC rules.

In order to be compliant with the Bank Secrecy Act (BSA) and guidelines from our regulator, the New York State Department of Financial Services (NYDFS), we have to be careful about who our customers are. Like any other financial institution, we must ensure that we are following the anti-money laundering (AML) and know-your-customer (KYC) laws that have been agreed to globally by the Financial Action Task Force on Money Laundering (FATF), which includes members from 38 countries including China and the US.

In the finance industry, these are the basics. But, for many in the crypto community, these are new concepts — and that has caused some friction.

Recently, a crypto blog wrote about users who were frustrated about their Paxos Standard (PAX) accounts getting shut down. This incident is related to suspicious behavior that, upon further investigation, our compliance team found it necessary to terminate their PAX accounts. These customers were creating accounts under other people’s names who were not the owners of the funds to withdraw more than Huobi’s recently instated $10k Pax withdrawal limits. Some customers began structuring withdrawals to get around them and went so far as to create as many as 30 accounts on the same day. Once we realized what was going on (including customers admitting this behavior), we generously honored their redemptions but closed their accounts.

Fortunately, this affected less than 2% (less than $4mn) of PAX redemptions in the past 4 months since we launched. The vast majority of our customers operate in good standing and on average, 95% of weekday redemptions of PAX are processed in half a day.

In fact, with over $200mn in redemptions to date, PAX has processed the most redemptions compared to other USD stablecoins launched this year (GUSD, TUSD and USDC) largely due to our fast, free and no-limit daily redemptions processing which only PAX offers. We offer these services for the benefit of customers acting in good faith and trust us to act responsibly.

We believe that regulation in this space is very important and crucial for crypto to be adopted in a more mainstream and widespread way. We are committed to leading the way forward with transparency and accountability for the entire industry, and to continue to explore these topics, we’ll share more thoughts about this through our four-part series on Regulation in the Crypto World.